What to look out for in the exam

Standard costing and variance analysis

Early tasks may include the preparation of a standard cost card for an individual unit or a certain quantity of output. You need an awareness of the different types of standards that may be used (ideal, target, normal and basic).

You may be asked to extract relevant data from the information given in order to calculate various figures which would be required when using a standard costing system eg standard number of labour hours needed for given level of output.

For tasks involving the calculation or explanation of variances, information may be presented in a variety of ways – standard cost card, budgetary control report or specific information itself.

Variance calculations will cover the following areas:

Materials (total/price/usage)

Labour (total/rate/efficiency/idle time)

Variable overheads (expenditure/efficiency)

Fixed overheads (expenditure/volume/capacity/efficiency)

Don't be surprised if you are asked to calculate a variance backwards! Further calculations may be required where you will be expected to use index numbers to subdivide a variance into its controllable and uncontrollable parts although this will not form a substantial proportion of a question.

The written task relating to this area will require you to show your understanding of variances and how total variances can be split further, an interrelation, as well as suggesting possible reasons for the variances arising based on information given in the task.

Forecasting techniques

Expect short calculations involving the use of index numbers and percentages as well as use of linear equations to forecast future costs.

Performance indicators

You will be asked to calculate a range of performance indicators, some of which apply to many organisations, whilst others may be unique to a particular industry.

The indicators which are often tested are:

Gross profit %

Profit %

Return on capital employed

Return on net assets

Current ratio

Quick ratio

Inventory days

Trade receivable days

Trade payable days

Gearing

Interest cover

Other more specific indicators may be asked for but the calculation will either be obvious or the formulae for these will be provided.

The written task for this area will ask you to explain why indicators in one scenario differ from that in another, paying particular attention to the gross profit margin.

What if? analysis

Having prepared performance indicators, you may then be asked to amend or forecast using new information given eg What new revenue would be if there was a change in selling price per unit?

This will lead onto making decisions about the product eg make or buy?

It is in this area of the exam that contribution analysis and breakeven analysis could be tested.

Cost management

This task will involve calculating the lifecycle cost of an asset using discounted cash flow techniques or , alternatively, working out the target cost of a unit of product.

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